The Goods and Services Tax (GST) Council’s decision to roll back the increase in tax rate for government works contracts comes as a relief for the Indian Railways which had received representations from contractors on increased tax liability on various ongoing projects.
“The GST Council’s decision to cut back GST on contract works to 12% has come as a big relief to us as there was huge uncertainty,” said a senior Railway Ministry official.
“The contractors were demanding more money for contracts awarded before July 1 due to increased tax liability but the Railways had refused to pay for the higher tax amount,” the official said.
The tax on construction activity, including composite work contracts, was increased to 18% from 12% under GST. However, Finance Minister Arun Jaitley announced after the GST Council meeting on Saturday that government works contract, for both Centre and states, will attract 12% GST with input tax credit.
Panel set up
The Railway Ministry has also constituted a committee to examine the impact of GST on the work contracts after receiving representations from contractors on increased tax liability.
Work related to track, construction of bridges, earthwork in embankment, supply, unloading and spreading of ballast, among others were facing increased tax liability after the government’s initial move to increase GST on such projects.